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Order Flow and Exchange Rate Dynamics

Journal of Political Economy, Vol. 110, February 2002
  • 0
    Citations
  • 1,178
    Usage
  • 1
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Usage
    1,178
    • Abstract Views
      1,178
  • Captures
    1
    • Exports-Saves
      1
      • SSRN
        1

Paper Description

This paper presents an exchange rate model of a new kind. Instead of relying exclusively on macroeconomic determinants, the model includes a determinant from the field of microstructure finance - order flow. Order flow is a determinant because it conveys information. This is a radically different approach to exchange rates. It is also strikingly successful. Our model of daily deutsche mark/dollar log changes produces an R2 statistic above 60 percent. For the deutsche mark/dollar spot market as a whole, we find that $1 billion of net dollar purchases increases the deutsche mark price of a dollar by 0.5 percent.

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